%0 Journal Article %A Bill Hao %A Aye M. Soe %A Kelly Tang %T Carbon Risk Integration with Factors %D 2018 %R 10.3905/jii.2018.1.061 %J The Journal of Index Investing %P 53-65 %V 9 %N 2 %X Integration of carbon risks into the investment process requires careful analysis of risk–return characteristics and factor exposures of resulting carbon-efficient portfolios. In this article, we propose a stylized framework to integrate traditional style factors with carbon-efficient portfolios for both U.S and developed Europe markets. The results show that although carbon-efficient factor portfolios do achieve the objective of lowering carbon intensity, they generally have lower risk-adjusted returns than the pure factor portfolios. In addition, carbon-efficient factor portfolios have lower exposure to the targeted factors, and the reductions in factor exposure are statistically significant.TOPICS: Analysis of individual factors/risk premia, ESG investing, developed %U https://jii.pm-research.com/content/iijindinv/9/2/53.full.pdf